In rental property management, it is essential to prepare for a wide range of risks, from natural disasters such as fires and earthquakes to tenant-related problems. For that reason, carrying insurance is important, but basic coverage alone may not be sufficient in some situations. In this article, we explain in detail the types of insurance landlords should carry, as well as the “Rental Building Owner Liability Endorsement,” which helps protect against accidents caused by inadequate building management.
What types of insurance should landlords carry?
Here are the basic types of insurance that are important for rental property management.
Fire insurance
Fire insurance is the first type of insurance rental property owners should carry. In Japan, there is a law known as the “Fire Liability Act,” and unless there is gross negligence, you generally cannot claim damages for losses caused by a fire spreading from a neighboring property. That is why you need to protect your own building yourself. Coverage is divided into “building” and “household contents.” As a general rule, the landlord carries insurance for the building, while the tenant carries insurance for household contents.
Earthquake insurance
Because fires and tsunamis caused by earthquakes are not covered by fire insurance, earthquake insurance is also important. Since the government is involved, it can respond even to major earthquakes. It is purchased as an add-on to fire insurance, and the insured amount ranges from 30% to 50% of the fire insurance amount (maximum: 50 million yen for buildings and 10 million yen for household contents).
Solitary death insurance
Cases of solitary death among tenants are increasing year by year, and the cost of handling remaining belongings and specialized cleaning can be substantial. The average age for solitary death is 61, so this is not an issue limited to older adults. For landlord-oriented policies, the typical premium is around 30,000 to 40,000 yen per year, and rent guarantee coverage is often included.
Group credit life insurance
This insurance pays off the loan if the borrower dies or becomes severely disabled. At many financial institutions, it is a lending requirement for apartment loans.
What is the Rental Building Owner Liability Endorsement?
The Rental Building Owner Liability Endorsement is an insurance add-on that covers compensation for bodily injury or property damage accidents caused by inadequate management on the part of the building owner. Depending on the insurer, it may also be called a “Facility Liability Coverage Endorsement.”
How it differs from personal liability coverage
If the cause is a “person,” personal liability coverage applies. If the cause is the “building,” the Rental Building Owner Liability Endorsement applies. For example, if a tenant drops an object and damages a car, the former applies. If an exterior wall collapses and damages a car, the latter applies.
Scope of coverage
- Compensation for injured parties
- Costs for first aid and preventing secondary damage
- Court costs and attorney fees
Coverage is limited to accidents caused by “inadequate maintenance and management of building safety” and “structural problems with the building”.
What are the benefits of adding the Rental Building Owner Liability Endorsement?
There are three main benefits to adding this endorsement.
Broad coverage
It provides wide-ranging coverage, including injuries in common areas, elevator accidents, and damage to pedestrians or vehicles caused by falling exterior walls.
Good cost performance
Some insurers allow you to set the liability limit for bodily injury and property damage at 100 million yen even with an annual premium of under 10,000 yen. This makes it possible to prepare for high-value claims at a relatively low cost.
Also covers unexpected trouble
It can also apply to difficult-to-predict accidents, such as a building being damaged by strong winds or heavy snow and debris harming passersby.
What should you keep in mind about the Rental Building Owner Liability Endorsement?
These are the key points to understand when adding this endorsement.
- Always fulfill your disclosure obligation：False disclosure can lead to cancellation of the policy and denial of insurance benefits
- Be careful about overlap with other insurance：With property and casualty insurance, you cannot receive more than the amount of the loss, so overlapping coverage can result in unnecessary premiums
- Check the exclusions：“Intentional acts” are excluded, but “negligence” is covered. Water leaks from water supply and drainage pipes are also covered
- Set an appropriate policy limit：A higher limit provides more peace of mind, but it also raises the premium, so balance is important
- There is no settlement negotiation service：You can receive consultation and advice from the insurance company, but you will need to handle settlement negotiations yourself
What other endorsements are available? A list of useful options for landlords
Here are other endorsements that can be useful for rental property management.
| Endorsement name | Coverage details |
|---|---|
| Repair Cost Endorsement | Damage investigation costs, restoration work costs, temporary structure costs, and more |
| Waiver of Subrogation Endorsement | Allows damage caused by tenant negligence to be handled promptly through the landlord’s insurance. Helpful for maintaining a good relationship with the tenant |
| Rental Income Endorsement | Covers losses when rental income is lost due to fire or similar events |
| Landlord Expense Endorsement | Covers cleaning and restoration costs due to solitary death and similar events, as well as rent loss (up to 50%) |
| Electrical and Mechanical Accident Coverage Endorsement | Covers equipment short circuits and mechanical failures |
| Neighboring Fire Damage Endorsement | Covers damage if a fire starts at your property and causes damage to nearby properties |
| Flood Damage Endorsement | Covers water damage caused by typhoons, heavy rain, and snowmelt |
| Crime Prevention Cost Coverage Endorsement | Covers the cost of installing security equipment after an unlawful intrusion (up to 200,000 yen) |
What is facility liability insurance?
Facility liability insurance covers the compensation that an owner must pay when a third party, such as a tenant or passerby, suffers bodily injury or property damage due to a structural defect in the building or inadequate management.
Cases covered by the policy
Examples include injuries to passersby caused by falling exterior wall tiles, a tenant falling because of a broken handrail in a common area, or water damage to a lower floor caused by a burst water or drainage pipe. Accidents arising from building management and maintenance are covered broadly.
Breakdown of covered costs
In addition to damages such as medical expenses and repair costs, the insurance also covers dispute-related costs such as attorney fees and litigation expenses. Some policies also include riders that support settlement negotiations.
How is facility liability insurance different from fire insurance?
Both relate to the building, but they cover different types of risk. Ideally, owners should carry both.
Fire insurance covers damage to “your own building”
Fire insurance covers damage to the building itself caused by natural disasters or accidents. In other words, it covers “your own property (the building).”
Facility liability insurance covers “damage caused to third parties”
Facility liability insurance covers “damage caused to others” due to a defect in the building or inadequate management. By carrying both policies, owners can cover risk more comprehensively.
What is the typical premium for facility liability insurance?
Premiums vary depending on the size and use of the building, as well as the coverage limit.
Premium guideline
For a typical rental property, the annual premium is generally around 10,000 to 30,000 yen. With a coverage limit of 100 million yen, a rough benchmark is about 15,000 yen per year. If it is added as a rider to a fire insurance policy, it may be less expensive in some cases.
What should you watch for when purchasing facility liability insurance?
Understand the key points to check before enrolling so you can choose the right policy.
Setting the coverage limit
In the event of a serious accident, compensation can reach tens of millions of yen. For that reason, we recommend a coverage limit of at least 100 million yen.
Checking exclusions
Accidents caused intentionally or through gross negligence, as well as damage caused by natural disasters, may be excluded from coverage. Please review the policy terms carefully.
Checking for overlap with existing insurance
Because some fire insurance policies already include facility liability coverage as a rider, review your existing insurance contract before deciding whether to purchase additional coverage.
Regular insurance reviews are important
Do not assume you are fully protected simply because you have insurance. Review your policies regularly based on the following points.
- Is the insured amount set too high for the building?
- Are the endorsements aligned with your needs, and are there any unnecessary add-ons?
- Does the coverage overlap with other insurance policies?
Frequently Asked Questions (FAQ)
Q. Should the Rental Building Owner Liability Endorsement always be added?
In some cases, you can obtain 100 million yen in coverage for an annual premium of under 10,000 yen, so we recommend it from a cost-performance perspective.
Q. Is fire insurance alone enough?
Fire insurance provides basic coverage, but it does not cover fires caused by earthquakes or accidents caused by inadequate building management. It is important to combine it with earthquake insurance and other endorsements.
Q. Is solitary death insurance necessary even for properties without elderly tenants?
The average age for solitary death is 61, and about 11% of causes of death are suicide. It is worth considering regardless of the age profile of your tenants.
Q. What happens if coverage overlaps?
With property and casualty insurance, you cannot receive benefits exceeding the amount of the loss, so premiums paid for overlapping coverage are wasted. Compare the new policy with your existing coverage when enrolling.
Recommended reading
Q. Is facility liability insurance something you should always have?
There is no legal requirement to carry it, but it is strongly recommended for rental property owners. That is because a single accident can create the risk of bearing liability for damages ranging from several million to tens of millions of yen.
Q. Does it also cover accidents caused by tenants?
Facility liability insurance applies to accidents based on the owner’s management responsibility. Accidents caused by a tenant’s negligence are covered by the tenant’s own personal liability insurance.
Q. Where can facility liability insurance be purchased?
It can be purchased from non-life insurance companies. It is commonly added as a rider to fire insurance, but a standalone policy is also possible.
